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Wednesday, August 10, 2011

Day 300 - $60K Project: Year 2

Mike and I have been discussing next steps after we meet our goal of
paying off $60,000 in debt - which should happen in the next few weeks! We initially thought about next steps on our own so that we could each bring ideas to the table independent of each other's influence. Next, we had a few informal conversations where we bounced ideas off each other and attempted to play devil's advocate. Finally, we set a deadline to make our final decision. On decision day, we splurged and went out for a working lunch vowing to not leave the restaurant until we had figured out what we wanted to do with our extra money. I, as usual, came prepared with my laptop and some awesome Excel spreadsheet. Mike, whose mind works like an Excel spreadsheet, brought his good looks, charm and crazy analytic mind.

Let me just say that it feels really good to start a conversation with the phrase "soooooo, what do you want to do with that extra $4,000 dollars a month?"

$60K Project - Year 2 Goals1. Max out both 401(k)s. Taxpayers can contribute up to $16,500 to their 401(k)'s in 2011 with pre-tax income. Mike and I had both been contributing enough to earn the company match up to this point. My attempt at trying to figure out the perfect amount to save for retirement didn't produce any results so we decided the more we contribute the better at this point. Why? Since we are already in our early 30's, we are losing compound interest power with each year that passes. Plus, I would rather save more now in case a situation occurs in the future where we can't afford retirement contributions. I think of it as saving ahead of time. Finally, I'm pretty sure I've never heard anyone say they wish they had saved less for retirement. Estimated monthly cost of increased contribution: $1,290

2. Increase Lifestyle Budget. We have been living on bare minimum expenses for the past ten months and are ready to loosen the belt a little bit. But we also don't want to go absolutely crazy and fall back into our old, reckless spending habits. Therefore, we have decided to add $500 into our monthly expense budget beginning in September. The exact expense categories we will increase aren't set in stone yet, but this money will go towards extracurricular activities we previously delayed while paying off our debt (karate classes, eating out, pottery class, going out with friends). Monthly cost of lifestyle increase: $500 max

3. Emergency Fund.The remaining amount of money every month will go towards building an emergency fund for 3-6 months of expenses. Based on the way the world is working at the moment, both of us would feel a lot better if we had a little extra money laying around in case one of us involuntarily quits our job or we have to go live off the grid in the Rockies to survive armageddon. After the first two goals are taken care of, we plan to put the remaining amount of extra money into some sort of savings vehicle (to be determined - any ideas?). Estimated monthly contribution to emergency fund: $2,210.

Sarah, What About Your Remaining Debt?
Even after paying off $60,000 this past year (yay!), we will still have $50,000 remaining (boo!) from my undergraduate student loans. We have decided not to continue with our debt snowball at this time because the interest rate and monthly payment are both extremely low on this last loan.

Did We Make The Right Decision?
Who knows? We may freak out in three weeks and decide we need to completely change our game plan. But you know what? That's all right. We are making progress. We have a plan.Our lives, both personally and financially, have vastly improved based on our achievements.

Stay tuned,

What do you think about our goals for the next year? Do you have any advice as we switch gears from the debt snowball to a savings extravaganza?